Bottom Line:
We study the effects of the recent economic crisis on firms׳ bidding behavior and markups in sealed bid auctions.We find that markups of all bids submitted decrease by 1.5 percentage points in the recent economic crisis, markups of winning bids decrease by 3.3 percentage points.We also find that without the government stimulus package this decrease would have been larger.

We study the effects of the recent economic crisis on firms׳ bidding behavior and markups in sealed bid auctions. Using data from Austrian construction procurements, we estimate bidders׳ construction costs within a private value auction model. We find that markups of all bids submitted decrease by 1.5 percentage points in the recent economic crisis, markups of winning bids decrease by 3.3 percentage points. We also find that without the government stimulus package this decrease would have been larger. These two pieces of evidence point to pro-cyclical markups.

Mentions:
In Austria, the construction sector accounts for 7% of GDP on average between 2006 and 2009 (in Germany this share is 4.2%, in the USA 4.4%; OECD STAN data set). As can be seen from Fig. 1, total construction value added steadily increased from around 10 billion euros in 1999 to 2002 to 16.2 billion euros in 2008 in Austria in nominal terms. In 2009, when nearly all countries went into recession due to the financial crisis, total construction value added fell to 15.5 billion euros, which is a drop of 5% in real terms (the inflation rate was 0.5%) compared to a drop in real GDP of 3.8%. Building (corresponding to 2-digit-SIC code 15) and heavy construction (SIC-2: 16) are the two main subsectors. While building construction remained nearly flat in real terms, heavy construction value added fell by around 10% in real terms.

Mentions:
In Austria, the construction sector accounts for 7% of GDP on average between 2006 and 2009 (in Germany this share is 4.2%, in the USA 4.4%; OECD STAN data set). As can be seen from Fig. 1, total construction value added steadily increased from around 10 billion euros in 1999 to 2002 to 16.2 billion euros in 2008 in Austria in nominal terms. In 2009, when nearly all countries went into recession due to the financial crisis, total construction value added fell to 15.5 billion euros, which is a drop of 5% in real terms (the inflation rate was 0.5%) compared to a drop in real GDP of 3.8%. Building (corresponding to 2-digit-SIC code 15) and heavy construction (SIC-2: 16) are the two main subsectors. While building construction remained nearly flat in real terms, heavy construction value added fell by around 10% in real terms.

Bottom Line:
We study the effects of the recent economic crisis on firms׳ bidding behavior and markups in sealed bid auctions.We find that markups of all bids submitted decrease by 1.5 percentage points in the recent economic crisis, markups of winning bids decrease by 3.3 percentage points.We also find that without the government stimulus package this decrease would have been larger.

We study the effects of the recent economic crisis on firms׳ bidding behavior and markups in sealed bid auctions. Using data from Austrian construction procurements, we estimate bidders׳ construction costs within a private value auction model. We find that markups of all bids submitted decrease by 1.5 percentage points in the recent economic crisis, markups of winning bids decrease by 3.3 percentage points. We also find that without the government stimulus package this decrease would have been larger. These two pieces of evidence point to pro-cyclical markups.